PVMA's righteous indignation

Righteous, indeed, will appear to be the indignation of the Pakistan Vanaspati Manufacturers Association (PVMA) regarding the likelihood of withdrawal of the recently imposed 15 percent excise duty on edible oil in the Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA).
This has reference to the fears expressed by PVMA Chairman Shaikh Ikram at a press conference he addressed in Islamabad on June 6, pointing to the grim consequences of such a decision resulting from the ongoing negotiations between the government and FATA leaders.
It will be noted that there is quite some substance in his warning that in the event of the government succumbing to political pressure to that end, it could spell disaster for the national vegetable ghee industry, forcing the manufacturing units in the tariff areas into nothing short of closure.
He has rightly pointed out that the eventual imposition of 15 percent central excise duty, irrespective of the location, at the manufacturing stage, was a long over-due legitimate decision, which had been taken in response to the industry's persistent demand over a pretty long period, and that the representatives of FATA and PATA were agitating against it without any rhyme or reason.
Referring to the anomaly arising from reversal of the levy, Shaikh Ikram made a pointed reference to exemption of vegetable ghee and cooking oil units in FATA and PATA from payment of sales tax on imported edible oil as well as income tax, as against similar units in the settled areas, which are required to pay 20 percent sales tax, 3 percent withholding tax, plus 15 percent general sales tax (GST) at the manufacturing stage, all that leaving them at a great disadvantage compared to their counterparts in FATA and PATA.
Moreover, his argument that despite imposition of excise duty, FATA/PATA vegetable ghee/cooking oil units would continue enjoying exemption from 3 percent withholding tax on imported edible oil, one percent income tax on the purchase of local edible oil, besides complete exemption from the payment of sales tax on imported tin plate, chemicals, electricity, gas, etc, should certainly appeal to reason.
Their exemption from withholding tax of Rs 1,362 per tonne, along with sales tax on imported tin plate and other taxable inputs at Rs 578 per tonne and Rs 455 per tonne income tax on local purchase of edible oil, he said the tribal area units already enjoy a total exemption of Rs 2,395 per tonne.
All in all, he argued, any downward revision in the excise duty levied in the budget 2004-05 would not only have an adverse effect on the vegetable ghee/cooking oil units in the settled areas, but also deprive the government of Rs 1.5 billion in revenues.It will be recalled that commenting on the imposition of 15 percent excise duty on edible oil and ghee manufacturing units located in FATA and PATA, we had lauded it as removal of a long standing distortion in the incidence of indirect levies on this industry, pointing out that exemption of the units in the tribal areas not only discriminated against the industry in the NWFP but also against the vanaspati industry elsewhere in the country too.
Moreover, recalling that withdrawal of the exemption was consistently demanded during the past several years, but the demand was ignored seemingly on the ground that the special concession would help wean away the people of the area from poppy cultivation, thereby contributing to the efforts for eradication of trafficking in narcotics.
That this has proved of little avail in so far as the narcotic traffic is concerned, should become evident, among other things, also from the fate of a more ambitious earlier effort, namely, the creation of a tax-free industrial estate in Gadoon Amazai.
However, as a sequel to widespread resentment and protest from the country's industrial sector, most of the concessions were withdrawn, with the lone exception of the central excise duty exemption.
Now that it too stands withdrawn it has brought to the fore the futility of that approach. So much so that the trade bodies in the NWFP have lately voiced their strong opposition to the idea of revival of the Gadoon Amazai approach.
Viewed in this perspective, it will appear to be unwise to acquiesce in the pressure for continuation of the exemption.